Euro fails to hold gains over the Pound ahead of UK inflation

EUR/GBP slips toward 0.8550 at the time of writing on Tuesday, with the Euro (EUR) unable to hold onto earlier gains against the Pound Sterling (GBP). The pullback comes even after a soft United Kingdom (UK) labor report and a stronger-than-expected German sentiment survey, a mix that would normally favor the single currency.

The German ZEW Economic Sentiment index rose to 34.2 in August, beating the 30.0 forecast and July’s 26.3 reading, while the Eurozone gauge also improved more than expected. The release drew little reaction in EUR/USD, and it has done little to keep EUR/GBP bid.

The Pound, for its part, had come under pressure earlier after the UK labor report for the three months to June. The ILO Unemployment Rate held at 4.9%, above the 4.8% forecast, while employment growth slowed. Analysts at ING said the figures were nothing earth-shattering but still point to a cooling jobs market with minimal wage pressure, leaving in their view “little impetus for the Bank of England (BoE) to hike rates this year.” Even so, Sterling has steadied through the European session, and the cross is drifting lower.

The next test comes on Wednesday with UK Consumer Price Index (CPI) data for July. Consensus is 2.9% YoY, up from 2.6% previously. A hot print would revive BoE hike bets and add to the pressure on EUR/GBP, while a soft one would leave the Pound exposed and could give the Euro room to recover.

Technical analysis:

In the 4-hour chart, EUR/GBP trades at 0.8551, keeping a capped tone as it holds just under a dense band of overhead levels. Price sits above the 20-period Simple Moving Average (SMA) at 0.8549, which offers immediate trend support but remains below the 100-period SMA at 0.8558 and nearby horizontal barriers at 0.8553 and 0.8559, limiting upside attempts. The Relative Strength Index (14) around 51 suggests neutral-to-slightly positive momentum, yet this is not strong enough to outweigh the prevailing resistance cluster overhead.

On the topside, initial resistance appears at the horizontal level of 0.8553, ahead of the 100-period SMA and accompanying resistance line at 0.8558, with a break higher exposing 0.8559 as the next hurdle.

On the downside, the immediate pivot is the horizontal support at 0.8551, with the 20-period SMA at 0.8549 following as the next layer of demand; a sustained move below this short-term average would open the door to a deeper pullback within the recent range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)